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July 12, 2007

Pharmastem Therapeutics, Inc. v. Viacell, Inc. (Fed. Cir. 2007)

The Federal Circuit invalidated two patents this week on obviousness grounds, overturning a jury verdict that had survived a JMOL motion to the District Court. Surprising about the decision was that it merely referenced KSR Int'l Co. v. Teleflex Inc. as an affirmation of its own jurisprudence, while arguably ignoring strong evidence below of secondary considerations of non-obviousness that might have dictated a different result under the KSR-reinforced rubrics of Graham v. John Deere Co. Not surprising is that Judge Newman dissented, once again on the grounds that the majority had contravened both established Federal Circuit and Supreme Court precedent, as well as applying the standards of appellate review improperly.

The case, PharmaStem Therapeutics, Inc. v. Viacell, Inc., involved hematopoietic stem cells, particularly such cells obtained from umbilical cord blood. The two patents-in-suit were U.S. Patent No. 5,004,681 ("the '681 patent") and U.S. Patent No. 5,192,553 ("the '553 patent"), a continuation-in-part of the '681 patent; the '681 patent was the subject of three re-examinations. Claim 1 of the '681 patent (as amended on re-examination) reads as follows:

A cryopreserved therapeutic composition comprising viable human neonatal or fetal hematopoietic stem cells derived from the umbilical cord blood or placental blood of a single human collected at the birth of said human, in which said cells are present in an amount sufficient to effect hematopoietic reconstitution of a human adult; and an amount of cryopreservative sufficient for cryopreservation of said cells.

Claims 13 and 57 of the '553 patent read:

13. A method for hematopoietic or immune reconstitution of a human comprising: (a) isolating human neonatal or fetal blood components containing hematopoietic stem cells; (b) cryopreserving the blood components; (c) thawing the blood components; and (d) introducing the blood components into a suitable human host, such that the hematopoietic stem cells are viable and can proliferate with the host.

57. A method for hematopoietic or immune reconstitution of a human comprising introducing into the human a composition comprising human neonatal or fetal hematopoietic stem cells derived from the blood, in which the stem cells have been previously cryopreserved.

The jury verdict found both patents not invalid (as indefinite, anticipated, or obvious) and infringed, and rejected the Defendants' inequitable conduct defense and antitrust counterclaims. The District Court granted the Defendants' post-trial JMOL motions regarding infringement. The basis for the reversal with regard to the '681 patent was that Plaintiff's expert witness testimony was incompetent. Specifically, the District Court found that the testimony was not based on scientific testing of the Defendants' products but depended on the Defendants' marketing materials. Those materials represented that the umbilical cord blood sold by the Defendants contained hematopoietic stem cells in an amount sufficient to re-constitute an adult's hematopoietic system, a required feature of any product infringing the asserted '681 claims. The District Court held that this reliance could not be the basis for an expert opinion, and in the absence of testing, the expert's testimony was "well within the jury's common knowledge, common sense and common experience" and "no more than a lay-person's interpretation of the defendants' marketing materials." This disqualified her testimony as being inadmissible as expert testimony under the Supreme Court's holding in Daubert v. Merrell Dow Pharm., Inc. In addition, the District Court found that the weight of the other evidence at trial did not support the conclusion that all single units of cord blood were each sufficient to reconstitute an adult's hematopoietic system. Further, PharmaStem had not presented any evidence that any of the Defendants' cord blood units fulfilled this limitation of the patent claims. Thus, according to the District Court, there was "no legally sufficient evidentiary basis for a reasonable jury to find that all, or any specific number, of the defendants' cord blood units infringe the '681 patent."

PharmaStem's infringement complaint with regard to the '553 patent was limited to contributory infringement, since the Defendants merely supplied the cord blood used by physicians in the claimed methods. The jury's affirmative verdict of infringement was based on its answers to three "special verdict" questions: (1) that cryopreserved cord blood has no substantial noninfringing uses; (2) that the Defendants and transplant physicians were acting in concert or working together to complete the process of infringement of the asserted claims of the '553 patent; and (3) that the Defendants contributorily infringed "by selling or offering to sell cryopreserved cord blood that was actually used by a third party in the direct infringement" of the asserted claims (special verdict question #5). Although the District Court found that the jury had sufficient evidence to support its affirmative answers to the first two questions, it found that the Defendants did not sell or offer to sell cord blood. Instead, the District Court found that the Defendants were bailees to their customers' cord blood samples, and that they performed the service of storing and maintaining the cord blood under contract, to be returned upon request by their customers.

Judges Proust and Bryson (writing for the Federal Circuit) affirmed JMOL for both patents, but reversed the District Court's denial of JMOL of invalidity and found both patents invalid for obviousness. In affirming the non-infringement decision, the Federal Circuit agreed that the issue with regard to the '681 patent depended on whether the cord blood sold (or bailed) by the Defendants contained hematopoietic stem cells "in an amount sufficient to effect hematopoietic reconstitution of a human adult." The Court held that, although PharmaStem's strategy of relying on the Defendants' admissions could, under different circumstances, be sufficient evidence of infringement, here the other facts adduced at trial precluded PharmaStem from carrying its burden in proving infringement. The Federal Circuit also found unpersuasive PharmaStem's argument that the Defendants had themselves tested the cord blood samples for hematopoietic stem cell content (so PharmaStem did not need to replicate the determinations), because the testing done by the Defendants did not establish that an adult's hematopoietic system could be reconstituted using one cord blood unit. Finally, scientific publications put into evidence by PharmaStem were also held to be insufficient. Simply put, the Federal Circuit found that the weight of all the evidence did not support PharmaStem's contention that the Defendants' cord blood could satisfy the reconstitution limitation of the asserted claims. It did not help PharmaStem's case that the Court considered these deficiencies as being the result of an "all or nothing" trial strategy.

Similarly, the Federal Circuit upheld the District Court's bailment theory of non-infringement. The Federal Circuit upheld the District Court's interpretation of the contributory infringement statute (35 U.S.C. § 271(c)) to require "a sale or an offer of sale of a product; the statute is not satisfied . . . by the provision of a service for compensation." Here, the Federal Circuit opined that the cord blood remained at all times the property of the families whose infants supplied it, and that the Defendants merely stored and maintained the blood until it was requested under the terms of a contract between the parties. PharmaStem's arguments that the Defendants' provision of this service fell within the ambit of § 271(c) was also not persuasive; according to the Court, such an interpretation was contrary to the language of the statute and its legislative history.

Turning to the Defendants' invalidity defenses, the Federal Circuit did not reach the indefiniteness or anticipation issues because it reversed the jury's non-obviousness determination (and the District Court's denial of the Defendants' JMOL motion on the obviousness issue). The Federal Circuit's decision was based on its analysis of the prior art, which in its opinion suggested that umbilical cord blood contained hematopoietic stem cells. Under Third Circuit law (which the Federal Circuit applied here on procedural issues), the Court's determination was limited to whether there was substantial evidence supporting the jury's verdict.

In finding there was not substantial evidence, the Federal Circuit stated that the obviousness standard required a "reason" the skilled worker would make the claimed device or carry out the claimed process, and have a reasonable expectation of success in doing so. The Court found strong evidence in the prior art that the first prong of this test was satisfied. As to the second prong, the Federal Circuit was not persuaded by evidence that it was unknown in the art that cord blood contained hematopoietic stem cells. The Court cited portions (as characterized by Judge Newman's dissent, by "simply reweigh[ing] selectively extracted evidence") of the art to show that cord blood was known to contain such stem cells. It appears that the Federal Circuit interpreted the art based on its understanding that the existence of progenitor cells in the blood was evidence for underlying stem cells, although elsewhere in the opinion the Court appears to conflate the two cell types. The Federal Circuit's explication of the biological underpinnings suggests that it believed that a production of such progenitor cells was accompanied by persistence (and thus the presence of) stem cells in the blood. In discounting PharmaStem's expert testimony, the Court relied upon what it considered contrary statements made by the inventors, and refused to credit the expert's explanation that the cited art used the term "stem cell" inaccurately. In particular, the Federal Circuit cited a portion of the specification:

A human hematopoietic colony-forming cell with the ability to generate progenitors for secondary colonies has been identified in human umbilical cord blood. In addition, hematopoietic stem cells have been demonstrated in human umbilical cord blood, by colony formation, to occur at a much higher level than that found in the adult. The presence of circulating hematopoietic progenitor cells in human fetal blood has also been shown. Human fetal and neonatal blood has been reported to contain megakaryocyte and burst erythroblast progenitors with increased numbers of erythroid progenitors in human cord blood or fetal liver relative to adult blood.

The Federal Circuit considered these and other statements to be admissions that were binding on the Patentees, and established that the art recognized that cord blood contained hematopoietic stem cells. Thus, the Court believed that the skilled worker would have had a reasonable expectation of success in using cord blood to reconstitute an animal's hematopoietic system. In response to the argument that the inventors had proven something suspected but not known in the art, and thus had shown that cord blood had utility in reconstituting an animal's hematopoietic system, the Court said:

[T]he inventors merely used routine research methods to prove what was already believed to be the case. Scientific confirmation of what was already believed to be true may be a valuable contribution, but it does not give rise to a patentable invention. See KSR, 127 S. Ct. at 1732 ("Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress . . . ."); Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, 1367-69 (Fed. Cir. 2007) (simply because the formation and properties of a new compound must be verified through testing does not mean that the compound satisfies the test for patentability "since the expectation of success need only be reasonable, not absolute"); In re Merck & Co., 800 F.2d 1091, 1097 (Fed. Cir. 1986) ("Obviousness does not require absolute predictability."). Good science and useful contributions do not necessarily result in patentability.

Finally, the Federal Circuit was not persuaded by the secondary considerations proffered by PharmaStem, including commercial success, long-felt need, and recognition in the art, including testimonials from the Defendants, nor the fact that the six Defendants were the exception to the rest of the industry, who had licensed the patents.

In her dissent, Judge Newman objected to the Federal Circuit's failure to rule on the anticipation and indefiniteness issues, and disagreed with the Court's determination that the patents were obvious. For Judge Newman, the evidence of secondary considerations was unrebutted, and was sufficient to rebut the interpretation of the art by the Defendants and the Court majority. She would also have overturned the District Court's grant of the Defendants' JMOL motion of infringement as to both patents.